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Although this question was posted some time ago, I think it is worth while making some comments which might benefit those considering the options of forming a limited company or trading as an unincorporated business.
There are lots of different factors to consider when deciding between whether to register a limited company or whether to proceed as a sole trader.
Some of these elements are centred on the current system of company tax and how this might change in the future. An example is dividends and how they can currently provide a tax efficient means of taking income from a company.
Should the regulations change in the future it could radically affect what is seen by many as one of the main attractions of incorporating a company.
Another important factor is the individual’s personal tax position and how much profit the sole trader business or limited company is likely to generate.
Simplistically, exceptionally low profits could be covered by an individual’s personal allowances and therefore suggest that a sole trader might provide the optimum solution.
Higher profits which might be subject to 40% income tax if generated by a sole trader business might be more persuasive towards setting up a limited company where corporation tax rates are lower at the top end. In cases where little or no income is taken from the business, again this might be a positive argument for company formation, where the individual is only taxed on monies actually distributed.
I have written a simple illustration http://www.completeformations.co.uk/company-tax-savings.html of how the taxation position could differ between the two types of trading vehicle and whilst its points are by no means conclusive, they do provide a first glance of how a comparison could be carried out based on the specific circumstances of the individual in question.
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Vicky Lyons
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